Goldman Sachs Maintains Sell Rating on COSCO SHIPPING Holdings, Lowers Target Price

Overview

This report summarizes key points from Goldman Sachs' review of COSCO SHIPPING Holdings' Q1 2026 earnings call. Although company management is optimistic about short-term (Q2/Q3) supply/demand dynamics, believing geopolitical factors and port congestion will constrain effective capacity and fuel costs can be fully passed through via surcharges, Goldman Sachs maintains a "Sell" rating based on a long-term perspective. The institution believes the industry will face persistent oversupply and freight rate downward pressure in the coming years, particularly due to demand contraction on key trans-Pacific routes and potential capacity release risks from Red Sea re-opening. Accordingly, Goldman Sachs has adjusted earnings forecasts and target prices slightly.

Core views

Management Short-term View vs. Goldman Sachs Long-term Divergence: Management pointed out that effective capacity in the industry is expected to decrease by 8-9.5% due to delayed Red Sea reopening, Middle East situation interference, port congestion, and slow steaming for fuel saving, therefore supply/demand will improve sequentially in Q2/Q3. However, Goldman Sachs insists that looking at medium to long term, the industry will face deteriorating continuous oversupply and lower freight levels. Cost Pass-through and Contract Structure: Addressing market concerns about rising fuel costs, management stated that US long-term contract renewals are basically complete, with spot and long-term ratios stable at 50:50. Fuel surcharges in long-term contracts adjust monthly, while spot rates adjust weekly or bi-weekly, both able to almost completely pass high fuel costs to customers. Additionally, the company saves further costs through measures such as reducing ship speed. Regional Route Performance: In Q1, COSCO SHIPPING Holdings cargo volume grew 6.7% YoY, with Asia-Europe and domestic routes growing 14.9%, and intra-Asian routes growing 6.1%; Trans-Pacific routes declined 1.3% YoY due to high base effect of advance shipments in last year's Q1. Southeast Asia route freight was strong, mainly benefiting from US retailer procurement shifts to Southeast Asia and large imports of raw materials from China locally. Far East to Middle East routes resumed booking on March 25th, adopting intermodal transport mode, with bookings being very hot. Earnings Forecast and Valuation Adjustment: Given recent freight rate volatility and impact of high oil prices, Goldman Sachs expanded 2026/2027 Shanghai Export Containerized Freight Index (SCFI) forecast decline from -22%/-16% to -6%/-30%, and China Containerized Freight Index (CCFI) forecast decline adjusted from -9%/-8% to -6%/-12%. Combining Q1 results, Goldman Sachs adjusted 2026/2027 Net Profit forecasts up 7% and down 2% respectively. Based on 0.6x (H-shares) and 0.8x (A-shares) 2026 Expected Price-to-Book (P/B), target price adjusted slightly to H-share 10.9 HKD and A-share 12.9 RMB, maintaining Sell rating.

Analysis framework

Goldman Sachs adopted a typical cyclical stock analysis framework, focusing on examining changes in the supply-demand balance sheet. On one hand, it listened to management's logic regarding short-term geopolitical factors (such as Red Sea, Middle East) constraining effective capacity on the supply side; on the other hand, the institution adhered to its long-term macro judgment, i.e., structural slowdown in global trade demand (especially US imports) will lead to long-term oversupply. In valuation, Goldman Sachs used Price-to-Book (P/B) as the core anchor, considering the industry is in a downturn cycle, gave valuation multiples below historical averages to reflect future risk premiums.

Methodology notes

• Industry / Industrial Analysis FrameworkSupply-demand framework

  Effective Capacity Calculation

  In shipping industry analysis, nominal capacity does not equal actual available capacity. The research report estimates "effective capacity" by deducting capacity lost due to geopolitical conflicts (such as Red Sea detour), port congestion, slow steaming, etc., which is the key method for judging short-term supply/demand gaps.

• Valuation MethodPB valuation

  Price-to-Book Valuation at Cyclical Bottom

  For strong cyclical industries (such as shipping), PE often fails under expectations of large profit fluctuations or losses. Institutions usually adopt Price-to-Book (PB) for valuation and give discounts relative to historical averages according to cycle position (such as downturn cycles) to reflect declining asset return rates.

• Event Gaming and Behavioral Finance

  Cost Pass-through Capability Analysis

  Analyzing whether enterprises can completely transfer upstream cost fluctuations to downstream clients through contract terms (such as monthly adjusted fuel surcharges) is key to assessing their profitability stability. The research report judges effectiveness of cost pass-through by breaking down long-term vs spot ratios and adjustment mechanisms.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• COSCO SHIPPING Holdings (601919.SS / 1919.HK)

  Directly covered target, 4th largest container fleet operator globally

  Strengths

  Mature fuel surcharge pass-through mechanism, stable long-term contract ratioStrong demand on Southeast Asia routesFleet expansion complies with long-term environmental regulations.

  Weaknesses

  Facing long-term oversupply pressureTrans-Pacific route demand dragged down by US import declineValuation higher than historical downturn cycle average.

  Comparison

  Compared to peers, significant economies of scale, but equally difficult to avoid harm during industry downturn, and Goldman Sachs gives discount on its valuation multiple.

  Risks

  Red Sea re-opening causes sudden release of approx. 10% effective capacity, triggering price wars and cash loss.

Key data

• Change in 2026/27E SCFI Forecast-6% / -30%Previous forecast was -22% / -16%, reflecting intensified freight rate volatility
• Change in 2026/27E CCFI Forecast-6% / -12%Previous forecast was -9% / -8%
• Adjustment in 2026/27E Net Profit Forecast+7% / -2%Based on Q1 performance and latest freight rate assumptions
• Potential Reduction in Effective Capacity8-9.5%Management estimate, derived from Red Sea, Middle East, congestion and slow steaming
• YoY Growth in Q1 Cargo Volume6.7%Asia-Europe and domestic routes +14.9%, Trans-Pacific routes -1.3%

Impact & implications

The research report believes that although short-term geopolitical factors support tightness in freight rates and effective capacity, this only delays rather than eliminates the issue of oversupply. For investors, current stock prices may have reflected short-term optimistic sentiment, but in the long run, with normalization of Red Sea situation and new ship deliveries, the industry will face severe destocking and price war pressures. Goldman Sachs' Sell rating highlights risks of medium-to-long term allocation of this target, especially when the market overprices short-term good news.

Risks

• Red Sea re-opening causes approx. 10% increase in effective capacity, exacerbating oversupply
• US import demand continues to decline, dragging down Trans-Pacific route freight rates
• Industry long-term oversupply leads to freight rates below expectations

What to watch

• Whether Q2/Q3 actual supply/demand improvement matches management guidance
• Evolution of Red Sea and Middle East geopolitical situations
• Effectiveness of actual fuel surcharge pass-through amid fuel price volatility
• Changes in second-hand ship prices and scrapping rates